This post is by Giles Ellis, an experienced business coach and Director at GECA Chartered Accountants.
As small businesses evolve to become larger and more complex, the original owner operator model that is often the basis for business operations needs to evolve to better meet the needs of the business.
What is an Organisational Structure
Typically, this involves the implementation of a more formal organisation structure that maps the ideal organisational structure to the business’s human resources capital. An ideal organisational structure visually defines departments, key functions, roles and responsibilities. This enables businesses to be more scalable, sustainable and ultimately saleable. It enables focus by the business owner on key activities and strategic initiatives. The organisational structure also benefits the team with transparency of defined roles, responsibilities and career development opportunities.
The apex of the organisational structure is the Owner who uses a Director to manage the business. Often these roles are combined. The Director then directs the CEO to manage the business to achieve defined outcomes, typically a financial return on assets along with other strategic goals.
Adhering to the Reporting hierarchy is critical
In order to work effectively, it is critical the reporting hierarchy in the organisational structure is followed. This can be problematic in some instances and is important to be aware of these to avoid these instances occurring.
Pitfalls to avoid
A common situation in smaller New Zealand businesses is where an Owner/Director is also an employee reporting through to the CEO and involved in operations. Often in these instances, CEO decisions that impact employees can be undermined by the employees going directly to the Owner/Director to voice concerns rather than following the reporting hierarchy per the organisational structure and reporting in their manager. In this situation, it is vital the Director steps back and refers the employee to his or her manager as detailed in the organisational structure. Failure to do this will undermine the CEO’s authority and limit his ability to successfully execute his role.
Another common situation is where family members hold key positions in a business, typically a parent being the Owner and Director and a child who holds the CEO position.
Adhering to the Organisational Structure reporting hierarchy provides a framework for decision making that supports objectivity and enables accountability that is not influenced by the subjectivity of balancing family relationships against business requirements.
Let the reporting hierarchy work for you
An example of this is where the son, as CEO, wants to hire a new employee who is more expensive than what has been provided for within the budget. The son is convinced he has the right person for the role and the additional cost can be justified, however, the father, in his capacity as Director, does not agree and thinks the hiring process has been flawed.
The decision became a standoff and I was asked to facilitate an outcome. As a facilitator, my role was not to make the decision for them, however, to provide a process to support robust and informed decision making.
The business organisational chart was clear the CEO’s goal was to achieve the agreed budgeted net profit for the year and consequently, he needed the freedom to achieve this within the agreed budgetary parameters. This included making hiring and firing decisions.
As the sole Director, the father could outweigh this decision and enforce his decision to not authorise the new hire. However, consequences of doing this could be severe. It would undermine the son’s authority to make decisions and make him less accountable in the event he doesn’t meet the CEO goals of achieving budgeted profit.
The above example demonstrates the importance of all employees being aware of the requirements for their roles and for these to be documented in the organisation structure. The Director directs the executive but is not executive himself. The CEO is executive but is tasked with following the Board’s direction.
The Director and CEO relationship works most effectively when the business operates a sound corporate governance framework which is explored in our next blog.
Value an Organisational Structure brings
Implementing an ideal organisational structure is a crucial tool in optimising business performance and will add value in a number of ways. It provides objectivity to resourcing decisions and enables informed assessment of business requirements.
The creation of the best organisational structures benefit from the advice of a trained expert who will not only help you create the ideal business organisation structure but will also help with the implementation of the organisation structure to ensure it is effective in achieving its aims.
A GECA family business expert can help you create an ideal organisation structure for your business. Call Giles now for a free assessment of your needs on 0800 758 766.